July 20, 2000
Tidewater spends big on repairs
Tidewater Inc. owns and operates approximately 600 vessels worldwide, the largest fleet serving the international offshore energy industry. Its SEC Form 10Q report for the quarter gives some insights into what it has been spending on repair and maintenance and sheds a little (very little) light on its much discussed newbuilding plans.
Tidewater also notes that "as a result of the uncertainty of certain customers to make payment of vessel charter hire, the company has deferred the recognition of approximately $10.8 million of billings as of June 30, 2000 ($10.7 million of billings as of March 31, 2000), which would otherwise have been recognized as revenue. The company will recognize the amounts as revenue as cash is collected or at such time as the uncertainty has been significantly reduced."
Tidewater says the increases in the pricing of oil and natural gas combined with severe tightening of inventory levels for both crude oil and natural gas continue to increase the demand for working drilling rigs and services in the U.S. Gulf of Mexico and on a global basis. Strong demand for natural resources has prompted the oil and gas exploration and production companies to increase capital spending in order to take advantage of improving industry conditions. Despite improved market conditions capital spending levels still remain below late 1997 levels. U.S.-based vessel demand is expected to increase as market conditions and drilling rig utilization rates continue to improve and international-based vessel demand is expected to trend upward as international drilling activity recovers.
Tidewater's U.S.-based vessel revenues for the current quarter increased 11% as compared to the same period in fiscal 2000 as a result of higher utilization and average day rates. Average day rates and utilization for the towing supply/supply vessels, the company's major income producing asset in the domestic market, increased by approximately 7% and 21%, respectively, for the current quarter as compared to the same period in fiscal 2000.
Nonetheless, "current quarter operating profit for the U.S.-based vessels decreased significantly from the comparative period in fiscal 2000 in spite of increases in utilization and average day rates. The decrease in operating profit is due primarily to increases in repair and maintenance costs incurred from an intense drydocking program the company initiated in order to ready equipment for an expected improvement in demand for its vessels...sacrificing short-term profitability in anticipation of higher average day rates and vessel demand when market conditions in the U.S. Gulf of Mexico improve."
Tidewater says that,. as of June 30, 2000, towing supply/supply vessels operating in the U.S. Gulf of Mexico were earning $4,200 average day rates with a 63% utilization.
International-based vessel revenues for the current quarter decreased 23% as compared to the same period in fiscal 2000 as a result of lower average day rates and a decrease in the number of active vessels in the international-based fleet. The company sold its safety/standby vessels in July 1999, as it did not conform to the company's long-range strategies. Removing the revenue effect of the safety/standby fleet, current quarter international-based revenues decreased 15% as compared to same period in the prior fiscal year. International vessel demand continues to feel residual effects of the curtailments in customer spending due to the oil industry slow down.
Current quarter international-based vessel operating profit decreased approximately 42% as compared to the same period in fiscal 2000 as a result of lower average day rates, a decrease in the number of active vessels in the international-based fleet and higher repair and maintenance costs. International vessel utilization rates increased slightly, but primarily as a result of withdrawing 25 older, little-used vessels from active service during the latter part of fiscal 2000 at which time they were removed from the utilization statistics. Vessel utilization rates are a function of vessel days worked and vessel days available. Repair and maintenance costs increased primarily due to 25 international-based vessel drydockings.
Current quarter international-based revenues decreased 7% as compared to the prior quarter as a result of lower average day rates. Current quarter international-based vessel operating profit decreased 41% as compared to the previous quarter primarily due to higher repair and maintenance costs for international-based vessels.
Tidewater sold all of its safety/standby vessels for approximately $40 million in an all cash transaction during the second quarter of fiscal 2000. In July 1999, it acquired six new-build vessels from an industry competitor for an aggregate price of approximately $22 million. The package included one supply vessel, two offshore tugs and three crew boats. Five of the vessels were delivered to the market in fiscal 2000 while the sixth vessel was delivered to the market during the current quarter.
During the latter part of fiscal 2000, the company withdrew from active service, 39 older, little-used vessels. Fourteen of the vessels were withdrawn from the domestic-based fleet and 25 were withdrawn from the international-based fleet. Vessels withdrawn from active service are intended to be sold.
On January 20, 2000 Tidewater announced a new-build program estimated to cost in the range of $200-$300 million. The vessels, which will be designed to cover operational capabilities the company currently does not possess, will include very large anchor handling towing supply vessels and large platform supply vessels capable of working in most of the deepwater markets of the world. The company expects to finance the new-build program from its current cash balances, its projected cash flow and its existing revolving credit facility. Deliveries on the new vessels are expected to commence in about two years. At June 30, 2000 no commitments to shipyards or other suppliers had been made for construction of these vessels.